In Dating App Case, Ninth Circuit Applies Heightened Scrutiny to Approval of Pre-Certification Class Settlement

The Ninth Circuit recently reversed and vacated a district court’s approval of a pre-certification class settlement and attorney fees award. The circuit court held that the district court failed to subject the settlement and award to a higher standard of fairness and inquiry necessary when examining pre-certification class settlements. The Ninth Circuit highlighted that when examining such settlements, all “value” must stem from the settlement’s anticipated effect on the class.

In Allison v. Tinder, Lisa Kim sued Tinder, Inc. pursuant to the Class Action Fairness Act of 2005 for violations of California’s Unruh Civil Rights Act and its unfair competition laws. Ms. Kim alleged that Tinder had discriminated against its premium subscribers based on age. Specifically, she alleged that Tinder charged its subscribers a higher monthly rate if they were older than 29.

After Tinder successfully compelled arbitration, before class certification, and while the appeal of the arbitration decision was pending, the plaintiff and Tinder reached a class settlement at mediation. Over the objections of two class members, who were named plaintiffs in a parallel class action, the district court approved the settlement. It stated that the $24 million settlement was “fair, reasonable, and adequate” as required under Fed. R. Civ. Proc. 23(e) given the plaintiff’s weak case due to compelled arbitration and unfavorable precedent in Javorksy v. Western Athletic Clubs, Inc., 195 Cal. Rptr. 3d 706 (2015), which holds that age can be a reasonable proxy for income in upholding age-based discounts. Further, it stated that the $1.2 million attorney fee award was acceptable.

The Ninth Circuit disagreed. It noted that even under the deferential standard of review for abuse of discretion, the district court’s decision was untenable in light of the district court’s heightened duty to scrutinize pre-certification class settlements, as set forth in In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935 (9th Cir. 2011). Preliminarily, the Ninth Circuit stated that the district court had greatly underestimated the strength of the plaintiff’s case, citing Candelore v. Tinder, Inc., 228 Cal. Rptr. 3d 336 (2018), review denied (May 9, 2018), in which a class action plaintiff successfully alleged age discrimination claims under the Unruh Act against Tinder. It also noted that given the overlap between the Candelore and current class members, the settlement in the underlying case would release certain claims by the Candelore class members.

The Ninth Circuit then examined the $24 million settlement figure and concluded that the district court had substantially overstated the settlement’s worth:

• First, although Tinder promised to eliminate age-based pricing for new California-based subscribers going forward, given that the class members could not be “new” subscribers, the injunctive relief had no value to the class members—compared to the class counsel’s unsupported $6 million figure that the district court accepted.
• Second, Tinder promised to grant class members $12 million in premium awards on the Tinder platform, but 44 percent of the class were no longer subscribers, and for those who were, the offered awards were marginal given that they already received such awards by virtue of being premium subscribers. As such, the district court’s $12 million valuation of this promise was overstated.
• Third, although Tinder promised to pay as an alternative to the premium awards $6 million in cash to class members who filed a cash claim, given that less than 1 percent of the class had filed such claims, Tinder actually stood to pay less than $45,000—compared to the district court’s valuation of $6 million.

The Ninth Circuit also criticized the district court’s deference to the mediation proceedings and the judgment of the parties as to the $1.2 million attorney fees. Pointing to the “clear sailing” provision of the settlement, in which Tinder promised to not challenge the attorney fees, and the large discrepancy between the likely financial benefit to the class and the $1.2 million figure, in the court’s eyes, the district court had “abdicated its independent duty to see whether these actually excessive attorneys’ fees evidence[d] collusion in the settlement.”

Finally, although the district court had found the $1.2 million attorney fees acceptable, as it was 5 percent of the $24 million settlement, the Ninth Circuit disagreed, stating that the district court had “shirked its independent duty to assess the value of the settlement.” Specifically, the Ninth Circuit stated that without express justification and explanation as to how injunctive relief was quantifiable and benefited the class, the $6 million valuation for injunctive relief could not factor into attorney’s fees calculations. Further, it stated that a settlement’s value was grounded in the anticipated relief to the class, and thus, as noted previously, Tinder’s promise to pay $6 million in cash could not factor into attorney fees calculations.

Although the Ninth Circuit’s decision in Allison arguably is limited to pre-certification class settlements, read more broadly, Allison offers practitioners guidance in structuring class settlements and presenting them for examination. Namely, when presenting and defending a class settlement, practitioners should look beyond immediate monetary terms and instead examine the settlement’s anticipated effect on the class to determine its value.